Presented at the Poverty Policy Week Mwal. Nyerere International Conference Hall

- Dar es Salaam

SCALING UP BEST PRACTICES IN MSMEs FINANCING AND MAXIMIZING POTENTIAL OPPORTUNITIES FOR SUSTAINABLE PRO-

POOR AND INCLUSIVE GROWTH

By Mr. Filbert Sambagi (SEDIT EXECUTIVE DIRECTOR)

seditvicoba@yahoo.com- www.seditvicoba.or.tz+255 754 618809

The Case of Village Community Banks (VICOBA)

Economic Status in TanzaniaBackground

Tanzania is among the developing countries in the world, however, the government and its people are struggling to reduce poverty and improve their economy.

An insignificant small and medium sized enterprises segment separates the two segments.

The Tanzania economy is characterized by a small segment of large firms made up of subsidiaries, franchisees and a few state owned companies and very large segment of micro-enterprises dominated by very small enterprises most of which are informal.

Therefore sustainable scaling up of best practices should focus MSMEs most of which are informal for the sake of filling the so called “the missing middle”.

SMEs/Informal sector development potentials and opportunities

Through business linkages, partnerships and subcontracting relationships, SMEs have great potential to complement large industries requirements through symbiotic relationship.

It is estimated that about a third of the GDP in Tanzania originates from the Small and Medium Enterprise (SME1) sector. A large majority of these (98%) are micro enterprises/informal (employing less than 5 people). SME sector plays a crucial role in the economy.Since SMEs tend to be labor-intensive, they create employment at relatively low levels of investment per job created.. SMEs play a fundamental role in utilizing and adding value to local resources

SMEs development model

•General Policy Framework

•Regulatory Framework

•Infrastructure

Enabling Environment •Facilitating

Institutions –BDS

•Facilitating Inst. – Finance

•Technical and Managerial skills

•Business Culture

Catalysts• Central & Local Government

•Private Sector

•NGOs

•Development Partners

Actors• Macro (Policies)

•Meso (Capacity building)

•Micro (Facilitation)

Instruments

INFORMALIncludes people who use products offered by informal associations or groups. E.g.. ROSCAs, Village Community Banks (VICOBAs), Village Savings and Loans Associations (VSLAs), other community based savings groups, family and friends, small businesses and money lenders.

Access Strand – Definitions by Finscope 2009

FORMALLY INCLUDED Includes people hold an account with a financial institution such as a commercial bank, community bank or insurance company that is supervised by a financial services regulator and pension funds

SEMI-FORMALIncludes users of products offered by formally registered institutions but not supervised by a financial service regulator eg. SACCOs, MFIs, Mpesa etc..

TOTALLY UN-SERVED: Includes people who have no dealings with, and are excluded from any of the segments above.

Access to Finance - The status in Tanzania

Financial access Strand 2009 - 2006

Access to Finance - The status in Tanzania

Informally included strand

Access to Finance - The status in Tanzania

Reasons for not having savings and investment products

The VICOBA Approach as promoted by SEDIT

Sustainable Pro poor and Inclusiveness

SEDITIs a non-governmental, non-political, non-religious organization which has been established with the mandate of bringing social and economic development for the majority poor Tanzanians in rural and urban areas. VICOBA (Village Community Banks)The Village Community Banks (VICOBA) is a development model , that employees holistic approach. It is the replication of MMD (Mata Masu Dubara) model. MMD which means Women on the Move towards development was promoted by Care International in Niger in 1991 being an adoption of African traditional self help practices.

VICOBA (Village Community Banks)

StructureVICOBA model operates through self selected groups of people of 25-30 members who are essentially in smaller groups of fives called collateral groups (these acts like pressure groups in loans payments and guarantee systems).

Once it is formed, members elect the group management committee leaders among themselves; and there after the whole group undergoes training on business management, entrepreneurship and group management

VICOBA Structure… continues

For around 16 weeks, the group attends banking and training. The banking operation starts by pre determining a group share value, of which can Tsh.1000, 2000, 5000 etc, depending on the economic status of the group members. Each member has to buy between 1-3 shares per week plus other pre determined health, education and group operations funds contributions. Thereafter, group is linked to formal financial service provider-commercial bank.

VICOBA Training Phases

SEDIT has a developed a special package for training VICOBAs with well-defined curriculum. Training is a sustain inability pillar that forms the major strength of VICOBA model

VICOBA Training Phases… continues

Objective:To sensitize the local authorities and the community acquaint them with the basic characteristics of the VICOBA methodology and recruit them into the program and form groups.

Phase I: Introductory phase: 2 – 3 weeks

Objective: To enable group members understand clearly how to manage their group activities and provide business management skills to enable them select, plan and manage their IGAs profitably.

Phase II: Intensive Training phase: 4 months

VICOBA Training Phases… continue

Objective: Assist the group to become self-governingThe group members at this phase are taking loans and reimbursing accordingly. It is a high time as well for other integrative training like appropriate skills, governance, agribusiness etc

III Development phase - 4 months

Objective: Assist the group to become independent from the projectThe Field Agents visits the groups at the end of three months. At that time, they will do a final evaluation of the group. Based on this evaluation, decision is done on whether the group is ready to be independent, or if it still needs assistance. Based on the evaluation results the Field Agent can estimate appropriate time, and determine type of and magnitude additional assistance to the weak groups.

IV Maturity phase - 3 months

SEDIT ‘s SUCCESS TO SCALE UPPROGRAM REGION

 Number of Groups

MembersCapital mobilized by 2011 ( Tsh.)District MEN WOMEN Total

ORGUT-SEDIT

VICOBA PROGRAMME (FSDT)

MWANZA 1 UKEREWE 108 1572 1602 3174   1,089,078,160 

MUSOMA

2 BUNDA 93 1159 1347 2506      611,550,415 3 SERENGETI 78 860 1114 1974      466,042,609 4 MUSOMA 103 1154 1668 2822      795,087,664 5 TARIME 116 1112 1677 2789      673,497,290 

SINGIDA 6 SINGIDA 103 1169 1595 2764      734,293,051 

MANYARA

7 HANANG 101 1000 1586 2586      640,001,151 8 BABATI 124 1138 2444 3582    1,121,993,666 9 SIMANJIRO 99 795 2026 2821   1,056,356,949 

10 KITETO 80 734 1475 2209      539,313,487 11 MBULU 107 1494 1522 3016      665,717,851 

TANGA

12 KILINDI 94 1247 1339 2586      427,494,581 13 HANDENI 115 1280 2158 3438      895,320,267 14 KOROGWE 90 1233 1270 2503      401,420,650 15 MUHEZA 110 1493 1586 3079      764,086,960 

ARUSHA16 KARATU 105 960 1848 2808      675,509,717 17 MONDULI 86 666 1577 2243      414,939,003 

MOROGORO

18 MOROGORO 84 857 1424 2281      522,388,724 19 KILOSA 99 1088 1638 2726      516,271,174 20 KILOMBERO 109 1420 1675 3095      584,906,621 

RUMAKI VICOBA

PROGRAM (WWF TZ.)

LINDI 21 KILWA 50 832 576 1408      335,263,363 

COASTAL

22 RUFIJI 25 380 321 701      167,631,682 23 MAFIA 90 1321 1109 2430      603,474,053 24 MKURANGA 20 335 215 550      134,105,345 

(SEDIT) DAR 25 ILALA MUNICIP. 80 357 1807 2164      536,421,381 

UNDP VICOBA PROG.

MTWARA

26 NANYUMBU, 22 420 196 616      147,515,880 27 MTWARA 38 580 484 1064      254,800,156 28 NEWALA 26 311 391 702      174,336,949 29 MASASI 27 209 491 700      181,042,216 

RUVUMA 30 MBINGA 60 862 858 1720      402,316,036 TOTAL 12 30   2442 28038 39019 67057  16,532,177,050 

SEDIT ‘s SUCCESS TO SCALE UP

Due to the support from international organizations, government and companies in implementing SEDIT has impliemented several VICOBA programs For about 8 years SEDIT has conducted different VICOBA projects with the support from partners like FSDT for 20 districts, WWF 5, SONGAS 2 districts, UNDP/Ministry of Finance – Poverty eradication Department 6 districts. Over 4000 VICOBA groups with 120000 members, with loan fund of over Tzs.80Bil. from rural areas, 60 % being women. Also there are about 500 paraprofessionals trained by SEDIT as VICOBA FTsOver 50 institutions have been capacitated to run VICOBA projects including local government institutions and NGOs

Linkages of VICOBA groups to other service providers particularly agribusiness, health, simple technologies, education and good governance has been successful and between groups.

CHALLENGES IN SCALING UP VICOBAs FOR INCLUSIVE GROWTHHuge demand against resources

Training more groupsCapacity building networks Reaching new areas, sensitization and formation of new groups. Standards and quality management

Political interference in the VICOBA groups and the model

Missing recognition for linkage with forma sector due to InformalityAbsence of institutions for linkage to provide services like simple technologies

Timely information flow and gathering of data.

THANK YOU FOR

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